What Is Standing in the Way of a CRE Recovery?

Stress in the commercial real estate markets may not dissipate until there’s some relief over fear about the economy, unemployment and business closures, according to a recent podcast about the commercial real estate recovery.

“We’re highly concerned and very focused on what may be coming in the next few months,” said Jeffrey Deboer, president and CEO of The Real Estate Roundtable, an industry trade association, on the podcast.

Podcast host CBRE’s Spencer Levy interviewed Deboer and CBRE’s Brian Stoffers in the episode.

Deboer said that federal lawmakers tried to build a “bridge to get people and businesses to appoint where they return to some semblance of normalcy.” The problem is that bridge may not be long and strong enough, Deboer noted. For example, he questioned whether the Paycheck Protection Program that has helped businesses pay rent and salaries may burn out at the same time the economy recovers, or whether there would be a lapse.

On the other hand, Stoffers, the global president of debt and structured finance for CBRE and the chairman of the Mortgage Bankers Association, said the single-family residential mortgage market is on fire, with two to four times the volume compared to the same time last year.

Several factors are contributing to the boom. Stoffers said sales volumes are down and less acquisition financing is taking place. The lenders are more selected.

That said, there have clearly been headwinds for the CRE industry, including lending and pricing. “For a while during the peak of the crisis, many lenders hit the pause button and they stopped lending altogether. They weren’t sure how to price their assets or price their mortgages because of the speed at which spreads were changing. So they just pulled out,” said Stoffers.

Lenders now are coming back, although some may not make it through the crisis, he said. Availability of capital is returning, but it is conservative and hard to come by for asset classes like lodging and retail, according to Stoffers.

Levy, the podcast host, asked what positive innovations could happen in the commercial real estate industry because of the COVID-19 crisis.

Stoffers replied that he expects innovation about how to return to work that will bring more flexibility.

“I think many of those changes will be awkward for some of the old dogs in the business to perhaps get used to. I think it’ll be embraced by the newer generation coming to work for the first time,” Stoffers said.

Deboer said people will become more aware that you miss a lot when not working in an office, and they’ll more appreciate working together in a collegial environment. There will be innovation about workspaces, and lodging and restaurant spaces, to become more healthy.

“I think that, as you know, society and the economy changes in order to react to all of this, that building owners and financiers are going to be right at the forefront of some really, really innovative forward thinking ways to accommodate the new way of life, whatever that is. So I’m very optimistic about that,” Deboer said.